Multi-Chem

[Big Toe]

It is not uncommon for distro/supplier to give out freebies to the corporate decision maker/purchaser/vendor personally. (Former transport minister seems to be a big fan of freebies.) Value of the gift varies. Usually it is of little concern as the gifts are usually not significant and do not influence the decision for the purchase.

In this case, exact details were not given, so it's hard to guess if it is a minor lapse or the tip of an iceberg.

[ghchua]

Hi Big Toe,

I think you have mis-interpreted the issue in hand.

The issue in hand is not about gifts (or the amount), but about the internal control procedures of the Group in which the manner the amount was paid. Making payments from company to employee's personal bank account and then to vendor's employee is not a considered a proper way of dealing with cash in the company. What if the employee just spend away the money? If you want to buy those vouchers, it should be straight from the company's bank account.

[Big Toe]

To clarify, I understand fully the issue in hand.
From all the information given thus far, It may just be a minor lapse.
From time to time there will be minor breaches of control procedures.
Unless there are more significant intentional /dishonest breaches uncovered, this is considered minor.

What then is considered something more serious to look into? Look no further than the locally listed MLM.
Already commented very very early on on their dealings, wouldn't even consider touching them with a 5 foot rod.

[weijian]

hi Big Toe,

We know that auditors practise sampling to do their work. And statistics tell us that if you want a Z confidence level for <Y% of defects (where Y is the acceptance level), you need to do Z samples.

And so it seems that from the "Z sampling", 1 of these transactions was flagged out for escalation. And in outgoing QA sampling, whenever a defect rate above acceptance is detected, the sampling increases to check for systemic issues. And it seems the auditors have plans for that if things don't turn out well:

The statutory auditors have indicated that depending on their review, they may wish to undertake a broader review of other matters as well

[Big Toe]

I have been indirectly dealing with manufacturing incoming/outgoing QA/QC for a good part of my early life Until i realized life is too short. The "defect" found in this case is non-critical to its day to day operations or its long term business. Not sure why it is made out to be a big deal with a trading halt. In any case, not vested, just airing my views. Businesses will have their flaws, but that doesnt mean it is not investable. Processes can be fixed, honesty and integrity cant.

[weijian]

So Multi-Chem will be "slapped" with a qualified opinion, some sort of accounting downgrade as per Microsoft Co-Pilot below:

A qualified opinion is an auditor’s assessment that a company’s financial statements are fairly presented, except for a specific area. Unlike an adverse opinion (which indicates significant issues) or a disclaimer of opinion (when the auditor cannot form an opinion), a qualified opinion is generally acceptable to lenders, creditors, and investors1. Here are some key points about qualified opinions:

Reasons for a Qualified Opinion:
Scope Limitation: When the auditor lacks sufficient evidence to verify certain aspects of the financial statements.
Non-Pervasive Issues: If there are material misstatements that do not significantly affect the overall financial position of the company.
Inadequate Disclosures: When the footnotes to the financial statements lack necessary information.

Remember, a qualified opinion is like saying, “Overall, things look good, but there’s this one spot we need to address.”

Previous 1.6mil has increased to 2.137mil, and hopefully that is the entire iceberg. Finally, company has swiftly appointed an independent law firm to check out the dealings. This is good pro-activeness and a good sign of things.

QUALIFIED OPINION BY INDEPENDENT AUDITOR ON THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2023

Separately, the Company wishes to update that it has, as of the date of this announcement, appointed a law firm, Shook Lin & Bok LLP, to conduct an independent inquiry regarding the matters raised in the Qualified Opinion. If and when there are any material developments which warrant a disclosure, the Board will make a further announcement on the SGX-ST in accordance with the listing rules of the SGXST.

https://links.sgx.com/FileOpen/Multi-Che...eID=794992

[thefarside]

"Previous 1.6mil has increased to 2.137mil, and hopefully that is the entire iceberg"

The earlier announcement quoted the affected amount in USD and that was US$1.6 mil. The latest announcement has it in SGD so my conjecture is the amount remains the same just that it is in different currency. It would appear that after the audit findings there are no further discoveries of other expense items that would fall within this category (yet). The next step would be to see if the review by Shook Lin and Bok would produce any further material findings.

[weijian]

"Previous 1.6mil has increased to 2.137mil, and hopefully that is the entire iceberg"

The earlier announcement quoted the affected amount in USD and that was US$1.6 mil. The latest announcement has it in SGD so my conjecture is the amount remains the same just that it is in different currency. It would appear that after the audit findings there are no further discoveries of other expense items that would fall within this category (yet). The next step would be to see if the review by Shook Lin and Bok would produce any further material findings.

hi thefarside,

Thanks for correcting my mistake.

There was also a corresponding change between the unaudited and audited statements where certain costs were assigned from COGS to selling/general/admin. Would these changes that the external auditor had a difference in opinion on, be related?

https://links.sgx.com/FileOpen/Multi-Che...eID=795000

[weijian]

Chairman Foo has been calibrating a slow sell-down of his stake in the last 2 months:

2months ago: 62,353,550/69.208%
As of 20th Aug2024: 61,956,050/68.767%

He has reduced his stake by ~0.44% with ~1-1.2mil of proceeds. In less than a month's time, he will be entitled to ~7mil of dividends from his existing stake. Is he really in need of money? If he does, he could actually declare a bigger dividend I suppose.

https://links.sgx.com/FileOpen/_Form%201...eID=816290

[weijian]

Without a legal training, I had to google (not chatGPT) to find out what it means - more likely than not, the transactions were in good faith by the company and its employees.

Looks pretty thorough and I think OPMIs will be glad moving foward, the auditor's flag will strengthen the company. IMHO, BDO LLP as the statutory auditor has thoroughly earned their fees and I hope the Mgt will continue using them in years to come.

UPDATE RELATING TO THE UTILISATION OF AN AMOUNT FOR MARKETING AND PROMTIONAL EXPENSES

On the balance of probabilities, the Transactions were bona fide transactions vis-à-vis the Group and its employees.

https://links.sgx.com/FileOpen/Multi-Che...eID=828458